London house prices rise 26% in a year as UK prices pass pre-crisis peak

2nd July 2014

UK house prices have risen 11.8% since June 2013 according to the Nationwide house price survey passing their pre-financial crisis peak.

All regions saw growth in house prices in the second quarter of the year. The average house price now stands at £188,903. The price of house in London has reached the £400,000 mark with house prices up a staggering 26% in the second quarter compared with the second quarter last year.

Robert Gardner, Nationwide’s chief economist, says: “House prices recorded their fourteenth successive monthly increase in June, rising by 1%. As a result, the annual pace of price growth picked up to 11.8% from 11.1% the previous month.

“In seasonally adjusted terms house prices reached their 2007 peak in Q2, just as UK economic output is likely to have surpassed the high water mark reached before the financial crisis.

“While all regions recorded annual price gains for the fourth quarter in a row, there is still significant variation across the UK, with the South of England continuing to record the strongest rates of growth. In particular, London continued to outperform, with prices up by almost 26% in Q2 compared to the same period of 2013.”

“The price of a typical property in London reached the £400,000 mark for the first time, with prices in the capital now around 30% above their 2007 highs and more than twice the level prevailing in the rest of the UK when London is excluded. In the UK as a whole, prices are less than 1% above their pre-crisis peak. Excluding London they are 0.4% below peak.

“The annual pace of growth in the capital will probably start to slow in the quarters ahead, given the high base for comparison from Q3 2013 onwards and given anecdotal evidence from surveyors and estate agents that activity may be starting to moderate.

Alexander Gosling, managing director of the online estate agents Housesimple.co.uk, says: “The speed of London’s house price rises long since moved from the breathless to the breakneck.

“But if anything shouts ‘unsustainable’, it’s annual price inflation of 26%. Such frothy excess hasn’t been seen since the peak of the late 1980s boom. With prices now 30% past their 2007 peak and rising by an incredible 7.6% a quarter, the capital’s property market is clearly living in its own supercharged bubble.

“It’s too soon to talk of London price rises going off the boil, but the heat may finally be at maximum.

“But it says much about the health of the market in the rest of the country that the poorest performing area – Scotland – still racked up a respectable 5.4% annual growth.

“House prices are finally on the up across the board, buoyed by cheap money and ultra-confident consumers who risk convincing themselves that the only way is – and will continue to be – up. We’ve been here before and it didn’t end well.”

Gosling has also questioned the Bank of England’s policies.

“Mixed messages from the Bank of England about the timing of the inevitable interest rate rise are fanning the flames of demand as people rush to snap up cheap mortgages while they’re still around.

“The Bank’s modest measures to tighten lending conditions will do little to temper the wave of optimism that continues to drive prices upwards. Even if the excesses of London and the South East mean they are close to peaking, robust growth in other regions still has a long way to run.”